Subcommittee advances 5 MW Sunset Reservoir solar PPA after debate over waiver, financing and local hiring

The Budget & Finance Subcommittee on Wednesday advanced a 25-year power purchase agreement (PPA) that would place a 5-megawatt photovoltaic system on the rooftop of the Sunset Reservoir and sell the electricity to the city through the San Francisco Public Utilities Commission.

Supervisor Carmen Chu introduced the item and Laura Spanjian of the SFPUC summarized the project, saying, "Today, we are seeking your approval of 5 megawatts of solar power on Sunset Reservoir using a power purchase agreement." The SFPUC and the developer, Recurrent Energy, argued the PPA structure lets a private developer use federal tax incentives and pass savings to the city.

The PUC and project team said the model yields substantial savings compared with a city-built option, with PUC staff noting a roughly $12 million tax-related savings and a constructed capital estimate in the tens of millions. The budget analyst told the committee that city-built cost is estimated at $45.3 million and, when financing and interest are included, could amount to about $86 million.

Supporters emphasized job creation and climate benefits. Recurrent Energy CEO Arno Harris said the project would deliver "local green jobs" and said an approval would help create "the nation's largest municipal solar power project" at the time. Guillermo Rodriguez of the Office of Economic and Workforce Development said the city negotiated a first-source agreement that targets 21 of the project's 71 construction jobs to eight economically disadvantaged zip codes and includes training commitments.

The hearing centered on two contract features that drew the most scrutiny: (1) buyout valuation at year 7 and year 15 and (2) the PUC’s request to waive portions of Administrative Code sections for annual appropriation and controller certification. PUC staff told the committee they added a year-15 buyout option and proposed buyout language that would set the city’s purchase price at the greater of fair market value or the net present value of remaining payments; the PUC estimated a year-15 net present value in the range of $25–$28 million using an 8.8 percent discount in its illustration.

Supervisor David Campos repeatedly raised concerns about the waiver request and the effect on Board authority. Campos said the waiver would undermine the Board’s appropriation power and asked whether the Board should bind future boards to a long-term payment obligation. "I just cannot imagine why a company would come before this board and ask me to waive what I was elected to perform," Campos said during his questioning.

PUC finance staff and the City Attorney said the waiver request was a commercial term required by bidders to obtain third-party financing and that removing the provision could make the project uneconomic. The Controller’s office warned that a waiver of the controller certification would mean the first dollar of power revenue would be dedicated each year to the contract for 25 years and that the controller would not perform the statutory annual certification function in the same way.

To address concerns, the PUC proposed contract amendments including the buyout formula, a not-to-exceed approach to the year-15 buyout calculation, a $1.8 million annual reserve hold, covenants to budget the maximum annual payment, and annual reporting on power revenues to the Board.

Votes at a glance: The committee approved the PUC amendment on the 15-year buyout and valuation formula (roll call: Campos Aye, Chu Aye, Avalos Aye). The committee then approved additional PUC payment/financial-language amendments (roll call: Campos No, Chu Aye, Avalos Aye). Finally the committee voted to forward the ordinance to the full Board without recommendation (roll call: Campos No, Chu Aye, Avalos Aye).

What it means next: The item will go to the full Board of Supervisors, where members signaled it will prompt further debate over the appropriation waiver and long-term fiscal commitment. The project team and PUC said they will return with finalized contract language and continue negotiations with the Controller and the City Attorney as outcomes proceed to the Board.